Restrictive Covenants: What to Consider, How Not to Get Sued and How Not to Lose (Depending on Your Side of the Case)

Posted on April 7, 2010


All small business owners strive for the same goal: happy, loyal employees who want what’s best for themselves and the company. But small business owners and their employees also want fair protection of their rights under the law, and this is where restrictive covenants, such as non-compete or non-solicitation agreements, often come into play. Former employees want to profit from their previous work experience. Business owners need to protect their client information and trade secrets.

Employers invest substantially in their employees and entering into contracts to protect that investment is often crucial. Employees need to recognize that investment and understand the employer’s position. On the other hand, employers need to realize that they are limiting an individual’s earning ability. This factor makes signing these agreements extremely personal. Going overboard or overreaching can be detrimental to the employer/employee relationship. Caution and sensitivity are crucial for both parties when negotiating restrictive covenants.

When it comes to enforcing/suing over a non-compete agreement, some highlights are listed below:*

Don’ts for Employers:

  1. Make sure the agreement is reasonable and necessary to protect the company’s rights. A non-compete that is too broad in coverage is more likely to be thrown out than a narrower one, and the necessity of protecting trade secrets is far more important than “geography, duration and scope.”
  2. Have strong evidence. If there is no confidential information or contact information to give, an employer has little to no case against a former employee.
  3. File quickly and pay attention to the state you file in. It’s easier to prove a former employee is a threat to your business the sooner you file a motion, rather than later. And some states are far more sympathetic to former employees than others. Alabama is generally pro employer.
  4. Having the law on your side isn’t always enough. Sympathetic stories and general likeability matter, too.

Don’ts for Employees

  1. Don’t take documents – either in their physical form, via e-mail or on a thumb drive. It just makes you look guilty, and the company will find out.
  2. If you want to take clients from your old business with you, start courting them after you leave the company—not before. And certainly don’t start your pitch before you’ve received your last paycheck from your former employer.
  3. Don’t take other co-workers with you. And if you must, give it a grace period.
  4. Be wary of burning bridges. Bottom line of human nature: it’s harder to sue/go after someone you like than someone you don’t. Be as gracious as you can. The real victory comes from success, not tearing down your old boss and co-workers on the way out the door.

Source: Jay Shepherd, Gruntled Employees